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Transforming firm innovation: International evidence on consumption tax adoption

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  • Lin, Chen
  • Wei, Lai
  • Xu, Ying

Abstract

This study examines the effect of consumption tax adoption on firm innovation. Using a cross-country sample from 1990 to 2015, we find that firms decrease their innovation intensity but manage to maintain their innovation quality following the tax adoption. Further analyses reveal that firms primarily decrease low-quality innovation in response to the decrease in consumer demand following the tax adoption. They also exhibit higher originality and explore a broader set of new knowledge during innovation, which helps differentiate their products to compete for customers. However, we find that firms’ ability to transform innovation strategies depends on their pre-existing financial capability.

Suggested Citation

  • Lin, Chen & Wei, Lai & Xu, Ying, 2023. "Transforming firm innovation: International evidence on consumption tax adoption," Finance Research Letters, Elsevier, vol. 56(C).
    • Handle: RePEc:eee:finlet:v:56:y:2023:i:c:s1544612323005093
    DOI: 10.1016/j.frl.2023.104137
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    References listed on IDEAS

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    More about this item

    Keywords

    Corporate innovation; Corporate transformation; Innovation strategies; Consumption tax; Consumer demand;
    All these keywords.

    JEL classification:

    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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